Nomura Reports Slowdown in India's Salary Outlays

India's economic landscape is currently experiencing a cyclical growth slowdown, as highlighted in a recent report by Nomura, a financial services firm.

According to the report, Indian companies are reducing their salary outlays, which could lead to a decrease in urban consumption. The report shows that when adjusted for urban consumer price index (CPI), the growth in real salary and wage expenditure for listed non-financial corporates slowed to 0.8% year-on-year in Q2 of the fiscal year 2025 (July to September), down from 1.2% in Q1 FY25. This marks a significant decline from 2.5% in FY24 and a 10.8% growth in FY23. Nomura's analysis indicates that both weaker nominal salary growth and a smaller workforce are contributing factors to this slowdown.

Additionally, the firm notes that the surge in pent-up demand following the pandemic has waned, with tighter monetary policy and the Reserve Bank of India's (RBI) measures to control high-risk lending affecting personal loans and the growth of non-banking finance companies.

India's Economic Forecasts

Nomura believes that India's economy has likely entered a cyclical growth slowdown. They point out that both coincident and leading growth indicators suggest a further reduction in GDP growth. They argue that the RBI's forecast of 7.2% GDP growth for FY25 may be overly optimistic, with their own projections lowering to 6.7% in FY25 and 6.8% in FY26. As risk factors increase, there are growing concerns about future economic performance.

RBI Insights

Last week, the Reserve Bank of India's Bulletin observed that high-frequency indicators indicate a slowdown in the second quarter of the 2024-25 fiscal year, indicating a temporary dip in economic momentum. The publication attributed some of this deceleration to unique factors, such as unusually heavy rains during August and September.

Despite these challenges, the RBI Bulletin mentioned that the overall growth outlook for India remains promising. It cites robust domestic factors and an expected revival in demand, particularly with the festive season approaching.

economy, growth, salaries